Focus Media Gets Offer in Biggest China Leveraged Buyout

“Focus Media is very dominant in the public-display advertising space in China and has geographically diversified itself throughout China’s big cities,” said Timothy Ghriskey,
chief investment officer of Solaris Group LLC, a New York-based firm that sold its stake in the company during the second quarter of 2011. Photographer: Nelson Ching/Bloomberg

Aug. 14 (Bloomberg) -- Focus Media Holding Ltd., a Chinese
advertising company targeted by short-seller Carson Block,
received a bid from private-equity firms including Carlyle Group
LP in what would be the country’s largest leveraged buyout.

The bidders made a “non-binding” offer of $27 for each
American depositary share, the Shanghai-based company said
yesterday in a statement. The offer is 15 percent more than
Focus’s Aug. 10 closing price and above the level when Block’s
Muddy Waters LLC began targeting it in November.

Some Chinese companies that were the subjects of research
by short sellers rose in U.S. trading yesterday after the
bidders, who include Citic Capital Partners and Focus Media
Chief Executive Officer Jason Nanchun Jiang, made the proposal
that values the company at $3.5 billion. A successful deal would
see the advertising group join Chinese companies such as Fushi
Copperweld Inc. and Winner Medical Group Inc. in backing moves
to go private after short sellers raised accounting and
corporate governance concerns.

The offer “is another example of how Chinese are taking
more and more of their companies private,” Sachin Shah, a
Jersey City, New Jersey-based special-situations and merger-arbitrage strategist at Tullett Prebon Plc, said by phone. “The
U.S. market isn’t properly valuing them and doesn’t know if the
offer price is right, allowing the management of the companies
to possibly win in getting the assets at lower valuations.”

Options Surge

Focus Media’s American depositary shares climbed 8.9
percent to $25.45 yesterday after jumping 7.6 percent on Aug.
10. The company has about 129.3 million ADRs outstanding.

Focus Media’s bullish options trading jumped to the highest
level since November on Aug. 10. More than 29,000 calls to buy
the stock changed hands, five times the four-week average,
compared with 7,635 for puts to sell.

Fosun International Ltd., which owns a 17.2 percent stake
in Focus Media, said the offer is an “attractive option.”
Fosun hasn’t made a commitment on the deal and will monitor the
situation, it said in an e-mailed statement.

Fosun, an investment company listed in Hong Kong, is the
second-biggest shareholder in Focus Media behind Jiang,
according to data compiled by Bloomberg.

Ad Network

Focus Media traded at $25.50 on Nov. 18. 2011, before Muddy
Waters recommended betting against the stock. The stock plunged
as much as 66 percent the next trading day after Block’s firm
issued a strong sell recommendation.

Muddy Waters in February issued a fifth report that said
Focus Media overstated its ad network. Short sales involve
borrowing a security such as a stock or bond, then selling it in
anticipation of a price decline.

Universal Travel Group, whose financial statements and
business model were questioned by Glaucus Research Group last
year, climbed 47 percent to $1 yesterday, advancing 85 percent
in three trading days. Duoyuan Global Water Inc., rated a
“strong sell” by Muddy Waters when it initiated coverage in
April last year, rallied 11 percent to 30 cents.

Since last year, companies such as China MediaExpress
Holdings Inc. disclosed financial irregularities or auditor
resignations as Block helped fuel scrutiny with reports on
corporations including Rino International Corp. and Sino-Forest
Corp.

‘A Bargain’

In Hong Kong, stocks that fell after research reports by
short sellers include Evergrande Real Estate Group Ltd., Winsway
Coking Coal Holdings Ltd. and China Yurun Food Group Ltd.

Winner Medical last month backed a merger pact with a
company owned by its chairman. In June, Fushi agreed to be
bought by a group including CEO Li Fu and Abax Global Capital.

In addition to Citic Capital and Washington-based Carlyle,
the bidders for Focus Media include FountainVest Partners, CDH
Investments and China Everbright Ltd., the company said in the
statement.

“Focus Media is very dominant in the public-display
advertising space in China and has geographically diversified
itself throughout China’s big cities,” said Timothy Ghriskey,
chief investment officer of Solaris Group LLC, a New York-based
firm that sold its stake in the company a year ago. “The PE
firms are seeing a bargain here.”

Raising Yuan

Private-equity investors including Carlyle and TPG Capital
are turning to China and its growing middle class as the volume
of deals shrinks in Europe and the U.S. Focus Media runs an out-of-home advertising network in China, using audiovisual displays
placed in cities and large venues.

Private-equity investments by Chinese firms rose to $7.8
billion last year, exceeding for the first time the $7.4 billion
poured in by U.S. and other foreign funds, as China steps up
efforts to develop home-grown investors, according to the Asian
Venture Capital Journal, which tracks the industry.

As a result, some U.S. firms are raising yuan, the Chinese
currency. Carlyle, the world’s second-largest private-equity
firm, raised a 3.2 billion-yuan ($503 million) fund in July last
year.

Yuan private-equity funds have raised $41 billion in the
past two years, more than double the U.S. dollar amount in
China, according to the data from the venture-capital journal.
At the same time, foreign-currency funds focusing on China
slumped to $10.2 billion last year from $39.2 billion in 2007,
according to an April report by consulting firm Bain & Co.

“The company’s board of directors has formed a committee
of independent directors to consider the proposed transaction,”
Focus Media said in the statement.

The investor group plans to use a combination of debt and
equity to finance the purchase. The bidders have provided a
letter from Citigroup Inc., Credit Suisse AG and DBS Bank Ltd.
stating the banks are “highly confident” of their ability to
fully underwrite the debt financing of the deal, the company
said in the statement.